The impacts of deposit growth on the profitability of commercial banks in Tanzania: A case of CRDB Bank Plc, Arusha City Council

Ngasa B. Ng’humbu

doi:10.51867/AQSSR.2.4.11

Authors

Ngasa B. Ng’humbu Institute of Accountancy Arusha (IAA), Tanzania Author

DOI:

https://doi.org/10.51867/AQSSR.2.4.11

Keywords:

Commercial Banks, Deposit Growth, Monetary Examiners, Policymakers, Profitability, Tanzania

Abstract

This study examines the relationship between deposit growth and profitability at CRDB Bank Plc in Tanzania, using Return on Equity (ROE) as a profitability indicator. The commercial banking sector in Tanzania faces considerable challenges in maintaining profitability due to fluctuating economic conditions and increased competition. Factors such as credit risk management, optimization of capital structure, macroeconomic influences (for example, deposit growth), regulatory compliance, and rapid digital transformation contribute to this complexity, highlighting the need for a deeper understanding of profitability dynamics. Despite a notable rise in deposits, academic literature lacks insights into the direct impact of deposit growth on bank profitability in Tanzania. To fill this gap, the research focuses on CRDB Bank Plc, aiming to shed light on the subtle interaction between deposit levels and ROE. The current study utilized liquidity preference, financial intermediation, and modern portfolio theories. By analyzing quarterly secondary data from 2014 to 2023 and applying correlation and regression analyses on 37 observations, the findings suggest a weak positive correlation between deposit growth and profitability, with a low R-squared of 1.87%. The average ROE was 17.90%, compared to an average deposit growth of 13.08%, indicating that deposit growth is not a significant factor influencing ROE. Therefore, the study recommends exploring additional factors affecting bank performance, including macroeconomic conditions and regulatory compliance, to improve strategic decision-making. Future research should also compare CRDB's performance against industry standards to identify potential improvements, ultimately aiming to support the development of a resilient banking environment that promotes economic growth in Tanzania.

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